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Practical Implications of Murphy Oil on Employee Waivers: An Ecological Disaster or a Dissenter’s Pipeline to Freedom?

Labor and Employment Law

This coming July will mark the 80th anniversary of the passage of the Wagner Act, signed into law by President Roosevelt in 1935. It was the Wagner Act that gave employees, under §7, the right to form and join unions and to go on strike; and under §8, it obligated employers to bargain with them. It was the Wagner Act that created the National Labor Relations Board (NLRB), a three-member panel appointed by the president and confirmed by the Senate, to enforce those rights and mediate disputes between them.

The chief cornerstone of the Wagner Act is the right to engage in “protected concerted activity,” which, more simply stated, gave employees a legally protected right to act together to try to improve their pay and working conditions, with or without a union. A lot has changed since then. The Wagner Act is now known as the National Labor Relations Act (NLRA),1 and the definition of what constitutes protected concerted activity encompasses within it certain communications by employees on social media like Facebook. Now, there is even an NLRB mobile iPhone and Android application available that provides employees and unions with information regarding their rights and obligations. But one thing hasn’t changed: Employers, unions, and the NLRB often sharply disagree as to the limits of their rights and obligations. The latest of these disagreements is whether employees who seek to improve working conditions through collective- and class-action litigation are engaged in protected concerted activity under §7 of the NLRA and, if they are, whether employment agreements waiving such rights constitute an unfair labor practice under §8(a)(1), since they would, by definition, interfere with those rights.

Late last year, the NLRB issued the second of two landmark decisions, holding that employee arbitration agreements waiving class or collective actions violate §§7 and 8(a)(1) of the NLRA. The NLRB’s first decision, In Re D. R. Horton, Inc. , 357 NLRB No. 184 (2012), was soundly rejected by the Fifth Circuit in D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013). District courts and other circuit courts across the country followed suit, and it seemed fairly certain that the NLRB’s pioneering position, that class and collective actions constituted protected activity, had met a swift end. But the NLRB continued undeterred, forcing repeated litigation over the enforcement of its remedial orders, still finding that 1) collective and class-action waivers violate an employee’s right under §7 of the NLRA to act in concert with each other; 2) and by seeking to enforce those waivers, employers are engaging in unfair labor practices under §8(a)(1).

In its second landmark decision, Murphy Oil, USA, Inc. and Sheila Hobson, 361 NLRB No. 72, 2014 WL 5465454 (Oct. 28, 2014), the NLRB condemned the federal courts’ contrary holdings and, lest there be any doubt, set forth in arduous detail its steadfast resolve to move full steam ahead, making what had been no more than a small oil slick, quickly remedied, seem more like an ecological disaster. Since then, in Citigroup Tech., Inc. & Citicorp Banking Corp. (Parent), A Subsidiary of Citigroup, Inc. & Andrea Smith, an Individual, 2014 WL 7331823 (Dec. 23, 2014), the NLRB has made good on its promise to impose fee sanctions against an employer because it sought, successfully, to enforce a collective-action waiver. So, until there is a split in the circuits and the U.S. Supreme Court determines to resolve the conflict, employers seeking to enforce waivers of class or collective-action lawsuits should be prepared to face a long and costly battle to clean up the mess left behind by the Murphy Oil spill.

History of the Enforceability of Class Action Waivers Under the Federal Arbitration Act
Before the NLRB inserted itself into what appeared to be a well-settled legal dialogue, existing policy and Supreme Court precedent generally favored the enforcements of arbitration agreements containing class waivers. Under the Federal Arbitration Act (FAA), which provides the substantive law controlling their validity and enforcement,2 arbitral agreements are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of the contract.”3 “The FAA embodies a liberal federal policy favoring arbitration agreements,”4 which the Supreme Court expressed as early as 1983.5

In the employment context, class and collective-action waivers have also been held to be enforceable. Almost 25 years ago, the Supreme Court found no substantive right to class actions under the Age Discrimination in Employment Act (ADEA),6 even though the statute provides for class procedures.7 This is important because collective- or class-action waivers may be unenforceable, notwithstanding the FAA, when the statute “evinc[es] an intention to preclude a waiver of [collective]-action procedure” or, in other words, contains a “contrary congressional command.”8 Despite the inclusion of collective-action procedures, the Supreme Court found no express provision in the ADEA that precludes waiver. Similarly, 15 years ago, the 11th Circuit approved the use of collective-action waivers in the Fair Labor Standards Act of 1938 (FLSA)9 context, rejecting an argument that such waivers were unconscionable and citing the Supreme Court for the proposition that “the fact that certain litigation devices may not be available in an arbitration is part and parcel of arbitration’s ability to offer ‘simplicity, informality, and expedition.’”10 And, just last year, the 11th Circuit again approved of collective-action waivers in the FLSA, finding no counter congressional command in the language or the legislative history of the FLSA.11 But this did not end the discussion.

The 2012 In Re D.R. Horton Decision and its Progeny

In January 2012, the NLRB issued its D.R. Horton decision, finding that the mutual arbitration agreements (MAA) used by one of America’s largest home builders violated §8(a)(1) because they interfered with the employees’ §7 rights to engage in “concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Under D.R. Horton’s MAA, employees agreed to binding arbitration and agreed that the arbitrator: 1) “may hear only [e]mployee’s individual claims”; 2) “will not have the authority to consolidate the claims of other employees”; and 3) “does not have authority to fashion a proceeding as a class or collective action or to award relief to a group or class of employees in one arbitration proceeding.” When D.R. Horton rejected the employees’ request for class arbitration of an FLSA claim, Michael Cuda, one of Horton’s superintendents alleging he was misclassified as exempt from the overtime provisions of the FLSA, filed an unfair labor practice charge with the NLRB. In finding on behalf of Cuda, the board necessarily viewed §7 as providing a substantive right for employees to improve their working conditions through administrative and judicial forums:

Just as the substantive right to engage in concerted activity aimed at improving wages, hours or working conditions through litigation or arbitration lies at the core of the rights protected by [§]7, the prohibition of individual agreements imposed on employees as a means of requiring that they waive their right to engage in protected, concerted activity lies at the core of the prohibitions contained in [§]8.

The board referred to a long history of decisions, “with uniform judicial approval,” that protected employees’ rights to pursue workplace grievances through litigation.12 “Clearly,” the board concluded, “an individual who files a class or collective action regarding wages, hours, or working conditions, whether in court or before an arbitrator, seeks to initiate or induce group action and is engaged in conduct protected by [§]7.”13 The board further held that because an employee’s right to engage in concerted activity is not a right that can be ceded in a private contract, the MAA’s interference in that §7 right constituted an unfair labor practice under §8(a)(1).14

In April 2014, and “loathe to create a circuit split,” the Fifth Circuit denied enforcement of the board’s remedial order finding that the NLRB failed to give proper weight to the FAA which, according to the Fifth Circuit, has equal importance to the precedent relied upon by the board.15 The Fifth Circuit further found that the FAA’s savings clause, which serves to invalidate any arbitration contract on grounds that exist at law or in equity for the revocation of any contract, “[r]equiring a class mechanism is an actual impediment to arbitration and violates the FAA.” The Fifth Circuit also reasoned that the use of class-action procedures is not a substantive right, despite the NLRB’s notion that the right to act collectively arises sui generis under the NLRA, and not through Fed. R. Civ. P. 23.16 The Fifth Circuit’s decision presumptively sounded a death knell for D.R. Horton that was heard by sister circuit courts.

Following close on the heels of the Fifth, both the Second the Eighth circuits agreed that the NLRB had overstepped its bounds when it found that the NLRA created a substantive, as opposed to a procedural, right to engage in class or collective actions. In Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013), the Second Circuit’s ruling came in yet another FLSA case, in which accountants sought to pursue misclassification claims on a collective basis. The Ernst & Young court rejected the NLRB’s invalidation of the collective waivers based on 1) the text of the FLSA itself (which evinces no congressional intention to preclude such waivers); 2) decisions in sister circuits; and 3) binding Supreme Court precedent (favoring waivers in consumer contracts and in the ADEA context).17 In Owen v. Bristol Care, 702 F.3d 1050 (8th Cir. 2013), the Eighth Circuit held a class waiver enforceable in an FLSA case and directed the district court to stay proceedings and compel arbitration. Despite the overwhelming opposition, the NLRB was not persuaded.

The 2014 Murphy Oil Decision
On October 28, 2014, the NLRB “independently re-examined”18 its 2012 D.R. Horton decision in Murphy Oil. In short, the three-member majority found that “[t]he rationale of D.R. Horton was straightforward, clearly articulated and well supported at every step.” The board strongly criticized subsequent circuit court decisions that repudiated D.R. Horton, dedicating sections of its order to the examination and rejection of those rulings. Essentially, the NLRB panel utilized the opportunity afforded by Murphy Oil to examine at length the subsequent circuit court decisions, the prior legislative histories, competing statutory schemes, Rule 23, and more, in a lengthy majority opinion reaffirming D.R. Horton and likely to encourage a split in the circuits and ready the arguments for the U.S. Supreme Court.

Chair Mark G. Pearce and members Kent Y. Hirozawa and Nancy Schiffer issued the 22-page majority opinion affirming its earlier position that the NLRA creates a substantive right to pursue joint, class, or collective claims under statutes outside the NLRA, even when those statutes are silent as to any such right. In disagreement with the circuit courts, the board concluded that the legislative history of the NLRA “indicated a congressional command to override the FAA.” The board further faulted the circuit courts for their failure to give the board proper deference as the “primary interpreter of federal law,” and went as far as to suggest that regardless of whether deference should be given, the board may indeed be the possessed of superior understanding of federal law outside the NLRA.

Two members of the board, Philip A. Miscimarra and Harry I. Johnson III, issued respectful yet forceful dissents in 36 pages of argument that will most certainly end up before the Supreme Court, “the only court authorized to interpret the [a]ct for the entire country.”19 So, the effort to clean up the leakage caused by the NLRB’s Murphy Oil decision appears to have begun within the NLRB itself, laying the groundwork for a bigger battle that most certainly lies ahead.

Member Miscamara, dissented in part, acknowledging his agreement with the majority “that the NLRA affords protection to two or more employees who, while acting in concert, initiate or participate in one or more non-NLRA legal claims for the purpose of mutual aid or protection.” Member Miscimarra, however, disagrees that employees and employers are prohibited by §8(a)(1) from entering into agreements that waive collective or class procedures. Miscimarra set forth four reasons for his belief that the board is in error: 1) Congress did not vest the board with authority to dictate how other courts or agencies would adjudicate non-NLRA claims; 2) employees and their employer are explicitly permitted under §9(a) of the NLRA to enter into agreements to adjust claims on an “individual” basis, and may, therefore, enter into class waivers in their effort to do so; 3) the NLRA does not prohibit class waivers; and 4) the NLRA and its legislative history make the remedies ordered by the board inappropriate — “especially the required payment of attorneys’ fees incurred by the [c]harging [p]arty in opposing [r]espondent’s meritorious motion to dismiss, which the district court granted.”20

Member Harry Johnson, in his dissent, openly chided the board for its stubbornness:

In today’s decision, the [b]oard…poses the unfortunate example of a [f]ederal agency refusing to follow the clear instructions of our nation’s Supreme Court on the interpretation of the statute entrusted to our charge…[and] the majority effectively ignores the opinions of nearly 40 [f]ederal and [s]tate courts that, directly or indirectly, all recognize the flaws in the [b]oard’s use of a strained, tautological reading of the National Labor Relations Act in order to both override the Federal Arbitration Act and ignore the commands of other [f]ederal statutes. Instead, the majority chooses to double down on a mistake that, by now, is blatantly apparent.

Stated simply, Johnson found fault with the board’s logic at every step, finding that 1) employees do not have a “substantive” §7 right under the act guaranteeing them the use of class- and collective-action procedures; 2) arbitration agreements that waive such “procedures” do not violate the §§7 or 8(a)(1) of the NLRA; and 3) the board’s holding does ­conflict with the national policy embodied by the FAA favoring the enforcement of arbitration agreements’ purpose to encourage the speedy private resolution of disputes.

Ultimately, Johnson had the last printed word (which may ultimately prove to be the final word in all other respects), noting that the board’s refusal to acquiesce to the greater weight of authority went well beyond its statutory role in interpreting the NLRA since it has no such authority when interpreting the Federal Arbitration Act, the Federal Rules of Civil Procedure, the Fair Labor Standards Act, the Norris-LaGuardia Act, and the Rules Enabling Act. “Interpretation of those laws,” he said, “is the province of the courts, and with the courts nearly universally rejecting the D. R. Horton theory, the board should defer to their rulings.” And in a final endnote, truly the last words printed in the Murphy Oil decision, Johnson implied that, as the board had done before in Nielsen Lithographing Co. v. NLRB, 854 F.2d 1063, 1066-1067 (7th Cir. 1988), the board has now once again “gone beyond ‘refusing to knuckle under to the first court of appeals (or the second, or even the twelfth) to rule adversely to the board’ and instead was guilty of ‘dealing with judicial precedent in a disingenuous, evasive, and in short dishonest manner.’”21

Conclusion: Practical Implications for the Future
In the short time that has elapsed since the board’s October 28, 2014, decision in Murphy Oil, dissenters within the NLRB have not remained silent. In an NLRB decision issued on December 15, 2014, Member Johnson made the following additional censure:

Even accepting the [11th] Circuit’s broad criticism…it is impossible to ignore the contrast between my colleagues’ willingness to follow the guidance of two dated court of appeals decisions in this case with their refusal to ‘acquiesce’ to dozens of federal court decisions that either expressly or implicitly contradict the position they hold with respect to the legality of individual class action arbitration waivers in their recent Murphy Oil decision. 361 NLRB No. 72 (2014). It would seem that adverse judicial precedent matters only when it favors [b]oard adjudication over private arbitration.22

As the battle to clean up after Murphy Oil continues, certainly delays and prolonged litigation should be expected. “[T]he majority’s action here poses a significant risk that the [b]oard’s caseload will swell substantially, with a corresponding delay in our own ability to reach final decision in cases before us.”23 While the adjudicative tide continues to ebb and flow between the district courts and arbitral forums to the NLRB, Murphy Oil will control future decisions by the NLRB unless and until the U.S. Supreme Court is confronted with a split among the circuits and grants certiorari. As stated most recently by NLRB Administrative Law Judge Donna Dawson in a decision concerning a Tampa charge, “I decline to deviate from [b]oard precedent. The [b]oard majority, in both D.R. Horton and Murphy Oil …by which I am bound unless and until it is reversed by the Supreme Court, the NLRB’s decisions will control the NLRB, for now.”24 Clearly, D.R. Horton and Murphy Oil have created a fissure both within the NLRB and between the NLRB and the circuit courts that only the Supreme Court can ultimately resolve.

As a practical matter and until the fracture is forever sealed, employers will continue to face litigation and sanctions by the NLRB for successfully moving to enforce their arbitration agreements, and the circuit courts will be called upon to referee the enforcement of those orders. This was made apparent after the American Arbitration Association declined to hear the collective action in the Citigroup Tech., Inc., case, when several current and former employees of Citigroup filed a demand for collective arbitration of their FLSA claims.25 Upon review of the employer’s arbitration agreement, which contained a provision that “neither Citi nor any employee may submit a class action, collective action, or other representative action for resolution under this [p]olicy,” the AAA rejected the employees’ demand and declined to administer the claims on a collective basis, though it indicated it would do so individually.26 An NLRB charge followed and the ALJ recommended the following sanction in her order:

I recommend [r]espondent be required to reimburse [c]harging [p]arty Andrea Smith and other grievants for any litigation and related expenses, with interest, to date and in the future, directly related to [r]espondent’s filing its request/petition for the AAA to reject their demand for a nationwide collective or class arbitration in Darlene Echevarria et al. v. Citigroup, Inc., et al. (Case No. 01-14-0000-0324).

Because the NLRB’s December 23, 2014, order is not self-executing, as with all such orders, the practical consequence is that the 11th Circuit will likely be next to weigh in on the continuing debate. And so for now, employers outside the Second, Fifth, and Eighth circuits will have to suffer prolonged litigation until the Supreme Court resolves the issue and cleanup can begin. Until then, the enforceability of class- and collective-action waivers is by no means settled and proceedings associated with the Murphy Oil spill will continue unabated.

1 Under §8(a)(1), it is an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in §7 of the act. 29 U.S.C. §158(a)(1). The rights guaranteed in §7 include the right “to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection….” 29 U.S.C. §157.

2 9 U.S.C. §§1-16 (2006).

3 9 U.S.C. §2. See also Jackson v. Home Team Pest Def., Inc. , No. 6:13-CV-916-ORL-22, 2013 WL 6051391 at *4 (M.D. Fla. Nov. 15, 2013), appeal dismissed (Apr. 2, 2014).

4 Schoendorf v. Toyota of Orlando, No. 608-CV-767-ORL-19DAB, 2009 WL 1075991 at *3 (M.D. Fla. Apr. 21, 2009), citing Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367 (11th Cir. 2005).

5 Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24 (1983).

6 29 U.S.C. §621 et seq.

7 Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 32 (1991).

8 Walthour v. Chipio Windshield Repair, LLC, 745 F.3d 1326, 1330-31 (11th Cir. 2014), cert. den., 134 S. Ct. 2886 (2014).

9 29 U.S.C. §201 et seq. The FLSA regulates, inter alia, the payment of minimum wages and overtime.

10 Caley v. Gulfstream Aerospace Corp. , 428 F.3d 1359, 1378 (11th Cir. 2005) (quoting Gilmer v. Interstate/Johnson Lane Corp. , 500 U.S. 20, 31 (1991)).

11 Walthour, 745 F.3d at 1331.

12 In Re D. R. Horton, Inc., 357 NLRB No. 184 (Jan. 3, 2012).

13 Id.

14 Id.

15 D.R. Horton, Inc. v. N.L.R.B., 737 F.3d 344 (5th Cir. 2013).

16 Id. at 357.

17 Sutherland v. Ernst & Young LLP, 726 F.3d 290 (2d Cir. 2013).

18 T he parties waived hearing by an NLRB administrative law judge and moved directly to board review of the case. Chair Mark Gaston Pearce and Craig Becker issued the D.R. Horton decision, and Chair Mark Gaston Pearce and Kent Y. Hirozawa and Nancy Schiffer issued the “independent re-examination” in Murphy Oil.

19 Murphy Oil USA, Inc., 361 NLRB No. 72, slip op. at 58 (Oct. 28, 2014).

20 In further consideration of Miscimarra’s last point, the question arises as to whether litigation regarding the enforcement of sanctions entered as a result of litigating a meritorious motion in district court would warrant sanctions under 28 U.S.C. §1927 as unreasonably and vexatiously multiplying the proceedings. This question has yet to be put to the test, at least at the time of this writing, but time may serve to provide an answer.

21 Murphy Oil USA, Inc., 361 NLRB No. 72 at n. 128.

22 Babcock & Wilcox Constr. Co., Inc. & Coletta Kim Beneli, 361 NLRB No. 132 (Dec. 15, 2014).

23 Murphy Oil USA, Inc., 361 NLRB No. 72 at n. 128.

24 Citigroup Tech., Inc. & Citicorp Banking Corp. (Parent), A Subsidiary of Citigroup, Inc. & Andrea Smith, an Individual, Case No. 12-CA-130742, 2014 WL 7331823 (Dec. 23, 2014).

25 Citigroup, Inc. & Andrea Smith, an Individual, Case No. 12-CA-130742, 2014 WL 7331823 (Dec. 23, 2014).

26 Id.

Laura L. Mall , counsel at Ford Harrison, represents employers in wage hour, discrimination, harassment, noncompete, trade secret, and wrongful termination disputes. She also conducts internal investigations and on-site audits, and advises employers on all manner of employment-related regulatory issues. She is president of her local chapter of the Christian Legal Society and teaches business law at Palm Beach Atlantic University.

This column is submitted on behalf of the Labor and Employment Law Section, Shane Thomas Munoz, chair, and Robert Eschenfelder, editor.

Labor and Employment Law